# Democrats' latest tax proposal **URL:** \ **Category:** Great Debates\ **Created:** [January 17, 2015, 4:53pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075 "2015-01-17T16:53:53Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [January 20, 2015, 7:06pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/81 "2015-01-20T19:06:41Z")
> [@D\_Anconia](#): > > President Obama, Mr. Buffett, and anyone else who thinks their own taxes aren’t high enough are free to send a check to the U.S. Treasury. > > [http://www.fms.treas.gov/faq/moretopics\_gifts.html](http://www.fms.treas.gov/faq/moretopics_gifts.html) > > [Have they done so? Romney is the only one who did anything like that]([http://www.washingtonpost.com/politics/decision2012/romney-earned-nearly-14-million-in-2011-paid-141-percent-tax-rate-campaign-says/2012/09/21/e62e5096-0417-11e2-91e7-2962c74e7738\_story.html](http://www.washingtonpost.com/politics/decision2012/romney-earned-nearly-14-million-in-2011-paid-141-percent-tax-rate-campaign-says/2012/09/21/e62e5096-0417-11e2-91e7-2962c74e7738_story.html)) AFAIK. But then again, he is a man of his word. Regards, Shodan ---
**Author:** ![andros](https://avatars.discourse-cdn.com/v4/letter/a/e480ec/32.png) [@andros](https://boards.straightdope.com/u/andros)\ **Post date:** [January 20, 2015, 7:20pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/82 "2015-01-20T19:20:54Z")
> [@Shodan](#): > > Romney is the only one who did anything like that AFAIK. But then again, he is a man of his word. As opposed to Obama and Buffett. :rolleyes: Riiiight. And if you could show where Buffet or Obama said they would do anything of the sort, your snideness would have a basis. Honestly, I find the whole “they can always pay more if they feel so strongly about it” argument to be almost mind-bogglingly facile. . ---
**Author:** ![D\_Anconia](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@D\_Anconia](https://boards.straightdope.com/u/D_Anconia)\ **Post date:** [January 20, 2015, 7:36pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/83 "2015-01-20T19:36:24Z")
> [@andros](#): > > Honestly, I find the whole “they can always pay more if they feel so strongly about it” argument to be almost mind-bogglingly facile. Instead, they’d rather raise taxes on other people. It’s the Democrat way! ---
**Author:** ![iiandyiiii](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/iiandyiiii/32/7924_2.png) [@iiandyiiii](https://boards.straightdope.com/u/iiandyiiii)\ **Post date:** [January 20, 2015, 7:43pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/84 "2015-01-20T19:43:57Z")
> [@D\_Anconia](#): > > Instead, they’d rather raise taxes on other people. It’s the Democrat way! They raise taxes on themselves and some other people, and lower taxes for some other people. Lately, the latter group has been much, much larger than the former. ---
**Author:** ![M.Constant](https://avatars.discourse-cdn.com/v4/letter/m/3ab097/32.png) [@M.Constant](https://boards.straightdope.com/u/M.Constant)\ **Post date:** [January 20, 2015, 7:46pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/85 "2015-01-20T19:46:46Z")
> [@Sam\_Stone](#): > > You missed my point. I’m not talking about the capital gains on the poor person. I’m talking about the capital that’s available to the poor person to start a business. > > Let me give you an example of how this works. Let’s say I’m an investor with capital. You’re a poor person with a great idea. You come to me to invest in your company. You want $100,000. > > So I do a proper analysis of your business proposal, and I attempt to assign a risk value to it. Investors always do this, because risk is the key variable in new startup investment. > > So I decide that you have a one in 5 chance of success. So 4 times out of 5 I’m going to lose all my money. That one time in 5 has to make up for that. Doing the math, you find out that the breakeven point comes if you get back $500,000 if the company is a success (i.e. if you invested in 5 identical ventures, you would expect to lose $100,000 on four of them, so the fifth one has to recoup that $400,000, plus the $100,000 you invested in that one). > > But breakeven isn’t good enough. I need to show a profit, and that profit has to be greater than what I could earn putting my money in a safe investment. Let’s say I could get 5% on a T-bill, and that I’m not going to get my investment back from you for 10 years. In that case, My $100,000 is actually worth about $169,000. So I’m going to need $845,000 in return if you are successful, just to get on an even playing field with a safe investment. > > Now… Let’s consider what happens when we add a 35% capital gains tax. Now, I lost $100,000 on four of my investment ventures, so I can call that a capital loss and deduct it from my gain, and I can deduct my original $100,000 investment in yours. But that leaves $345,000 in ‘capital gains’. But notice I’m not really gaining anything over just leaving my money in the bank, when you factor in the additional risk I took. But now I have to pay $172,000 of that money to the government, leaving me worse off than if I had just not invested at all. So sorry, poor person, you’re not going to find an investor. > > In this way, capital gains taxes bias investment towards safer opportunities. That punishes the people who don’t have connections, who don’t have Ivy League degrees, who don’t have a track record of starting successful businesses, and who don’t have capital of their own. I see three problems with that analysis. First you would only have to pay $172,000 in taxes if the capital gains tax was set to 50%, which I don’t think is what is being proposed. The 35% rate you mentioned would result in $120,750 in taxes. Secondly, and most important, you would have similar taxes for the Treasury Bill in that they would be taxed the same way at a federal level (although not state or local). Third, you kinda make it sound like the ten year delay on the T-bill is a good thing, by saying 100,000 is actually worth about $169,000. It’s comparing today’s dollar vs future dollars without accounting for inflation or opportunity costs. ---
**Author:** ![BobLibDem](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/boblibdem/32/3149_2.png) [@BobLibDem](https://boards.straightdope.com/u/BobLibDem)\ **Post date:** [January 20, 2015, 9:19pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/86 "2015-01-20T21:19:17Z")
> [@D\_Anconia](#): > > President Obama, Mr. Buffett, and anyone else who thinks their own taxes aren’t high enough are free to send a check to the U.S. Treasury. > > [http://www.fms.treas.gov/faq/moretopics\_gifts.html](http://www.fms.treas.gov/faq/moretopics_gifts.html) > > Have they done so? WOW! Did you think of that all by yourself? I had never heard that argument before! Brilliant, I say BRILLIANT! Why should a guy advocate for higher tax rates for him and other wealthy people when he could just write a check himself? Tax rates mean a lot less to the economy than most people think. Whether the capital gains tax is 28% or 30%, investors are still going to invest. Nobody is going to say “What? I can only keep 70% of my profits and not 72%? I think I just won’t invest at all and make nothing! That’ll fix them!” You could make an argument that 90% tax on capital gains would stifle investment, but the ranges we are talking about here are trivial. There are better things we could do for the middle class instead of tax relief. If the average guy gets an extra $500, he’ll buy an HDTV and the Chinese get the jobs. I’d prefer that we screw the tax cuts, go ahead and jack up the capital gains tax a bit, and go for infrastructure investments that will make tens of thousands of new jobs. Why raise the taxes on the rich? The money is flowing their way. Left alone, the top 1% will have an ever increasing share of the nation’s wealth. Some would say that’s fine, but if we can cut the deficit a bit and/or fund some worth projects by stemming the flow of money to the elite a bit, I think it’s perfectly appropriate. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 20, 2015, 9:23pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/87 "2015-01-20T21:23:18Z")
> [@Sam\_Stone](#): > > Consumption can also drive supply, and I think that’s most true with commodities. When there is no differentiation or value change for products from different manufacturers, the market becomes more stable and predictable, and production changes respond to changes in demand. What made the iPAD a success and the Segway a failure? Demand, obviously. That no one knows how to predict initial demand should not be a surprise. But most product sold is not sold during the ramp when demand is established, but during the central part of the product lifetime, when demand is much easier to predict and production can be tweaked to meet it. You do production for a ramp without knowing for sure what demand will be, and often this production is quite limited until you get feedback. (Not true for some consumer products, especially toys. And Atari ET games.) So unsuccessful product introductions are not all that significant in the larger picture. For a particular company, yes, for the economy no. Unless everyone jumps on the same broken bandwagon, like during the bubble. ---
**Author:** ![D\_Anconia](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@D\_Anconia](https://boards.straightdope.com/u/D_Anconia)\ **Post date:** [January 20, 2015, 9:38pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/88 "2015-01-20T21:38:31Z")
> [@BobLibDem](#): > > Tax rates mean a lot less to the economy than most people think. Whether the capital gains tax is 28% or 30%, investors are still going to invest. Nobody is going to say “What? I can only keep 70% of my profits and not 72%? I think I just won’t invest at all and make nothing! That’ll fix them!” You could make an argument that 90% tax on capital gains would stifle investment, but the ranges we are talking about here are trivial. The tax on capital gains, for most people, is 15%\*. **Doubling** it to 28% or 30% is not trivial, and would have an effect on investment. \*For some, it’s 0%, for the very rich 20%. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 20, 2015, 9:45pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/89 "2015-01-20T21:45:55Z")
> [@D\_Anconia](#): > > The tax on capital gains, for most people, is 15%\*. **Doubling** it to 28% or 30% is not trivial, and would have an effect on investment. What, the invisible hand of the free market doesn’t provide enough incentive to invest in companies all by itself? I have been misinformed. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [January 20, 2015, 9:56pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/90 "2015-01-20T21:56:03Z")
> [@Voyager](#): > > What made the iPAD a success and the Segway a failure? Demand, obviously. That no one knows how to predict initial demand should not be a surprise. But some people are better at it than others. Look at Jobs’ track record - the Apple II, the Mac, iPad, iPhone, iPod… All innovative products that broke open markets. On the other hand, people like Dean Kamen sometimes get so blinded by their own vision they fail to see the impediments to market acceptance and continue making brilliant product after brilliant product that never find traction in the marketplace. I’d argue that Google Glass is another such device. > [@](#): > > But most product sold is not sold during the ramp when demand is established, but during the central part of the product lifetime, when demand is much easier to predict and production can be tweaked to meet it. That was my point about commodities. I think the commodity aspect is important, because even in mature non-commodity markets surprises happen all the time. Take car sales, which have a strong design element to them. Car companies make pretty big bets when they change the design of a car - sometime it pays off in spades, like the newly designed Ford Escape. Sometimes it ends in utter failure, like the Pontiac Aztek. Demand for cars is well known. Demand for specific cars of new design vs the competitors? Not so much. Car companies can handle this risk by having many models of varying designs and by iterating design quickly so that failures don’t hang around their necks for decades. Consider ‘Cash for Clunkers’, which was supposed to stimulate demand for new cars and help Detroit back on its feet. It never worked. The chief effect was to pull demand into the present from the near future, and then lower demand in the future after the program ended. All it accomplished was to distort the marketplace and make it harder for car dealerships and auto manufacturers to figure out how much they should be producing and at what price. > [@](#): > > You do production for a ramp without knowing for sure what demand will be, and often this production is quite limited until you get feedback. (Not true for some consumer products, especially toys. And Atari ET games.) So unsuccessful product introductions are not all that significant in the larger picture. For a particular company, yes, for the economy no. Unless everyone jumps on the same broken bandwagon, like during the bubble. But many such decisions are made, and if the efficiency of identifying demand drops because of market distortions, the cumulative effect can be large. If you think of money as a mechanism for information exchange about the relative value of goods and services and the primary mechanism by which we determine relative demand and the cost of supply, a government intervention that distorts prices (either supply-side or demand side) can also have the effect of destroying the information needed to efficiently coordinate economic activity. If I am a businessman in a free market and I’m selling out of my product, I"m getting a signal that I should raise my prices or increase production. But if I’m selling out because of a one-time tax credit for products like mine, the effect is temporary and if I expand production I’m going to wind up with a surplus of product and production when the ‘stimulus’ ends. This is even worse for a general stimulus that is not permanent, because it can then be very hard to determine if increases in demand are the result of a true shift in market forces, or whether it’s a temporary effect of a government-induced surge in consumption. Planning becomes more difficult and the possibility of planning errors increases. Yet another part of the economy we have not considered is vertical markets where there isn’t a large body of customers we can use to draw statistical samples from. Most of the software I have worked on in my life was aimed at markets where selling a few dozen copies can be a big deal. Determining ‘demand’ is extremely hard in those markets, as the customers themselves often do not know what they want or need. We actually have to educate the customer on the benefits of the software, set up training programs for them, install pilot projects to demonstrate the product’s value, etc. This can be a real crapshoot, and I’ve worked on more than one project that cost millions and which we thought was going to kill in the marketplace, but just never found traction and was eventually abandoned. That increase in supply of software sure didn’t stimulate demand - it just soaked up a lot of resources. Overall, the point I was simply trying to make is that the simple notion that demand creates supply is wrong, as is the notion that increasing supply automatically creates demand. The relationship is far more complex than that, and the proper answer is, “It depends.” ---
**Author:** ![doorhinge](https://avatars.discourse-cdn.com/v4/letter/d/a5b964/32.png) [@doorhinge](https://boards.straightdope.com/u/doorhinge)\ **Post date:** [January 20, 2015, 9:58pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/91 "2015-01-20T21:58:19Z")
> [@andros](#): > > …Honestly, I find the whole “they can always pay more if they feel so strongly about it” argument to be almost mind-bogglingly facile. > [@BobLibDem](#): > > WOW! Did you think of that all by yourself? I had never heard that argument before! Brilliant, I say BRILLIANT! Why should a guy advocate for higher tax rates for him and other wealthy people when he could just write a check himself? (Both posts shortened) There is no law against paying the IRS more than you owe. Dig deep if’n you feel the need. However, a problem arises when you demand that other people pay more because you believe you should pay more. That would require a vote by Congress and neither Obama, or the Democrats, have the votes to get this passed. Obama’s latest tax proposal appears to be DOA. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 20, 2015, 10:02pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/92 "2015-01-20T22:02:14Z")
> [@doorhinge](#): > > There is no law against paying the IRS more than you owe. Dig deep if’n you feel the need. Oooh, I like that idea so much, I think we should extend that policy to spending cuts, they should be voluntary also. Just ask the people impacted by the spending cut if they would rather not. It’s only fair. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [January 20, 2015, 10:03pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/93 "2015-01-20T22:03:52Z")
> [@M.Constant](#): > > I see three problems with that analysis. First you would only have to pay $172,000 in taxes if the capital gains tax was set to 50%, which I don’t think is what is being proposed. The 35% rate you mentioned would result in $120,750 in taxes. I picked a number easier to visualize. The exact amount doesn’t really matter, as the principle is the same: Taxes on capital gains do not factor in risk, and therefore bias investment away from riskier ventures. > [@](#): > > Secondly, and most important, you would have similar taxes for the Treasury Bill in that they would be taxed the same way at a federal level (although not state or local). You’re missing the point: The treasury bill carries no risk. The formula for return on my investment is simple: I invest $100,000, I get back $100,000 plus interest, minus tax on the interest, every time. But if I invest in my brother-in-law’s restaurant, there’s a 90% chance I will lose everything, and a 10% chance that I’ll hit it big. My EXPECTATION of profit may be the same or only slightly more than the T-bill, because expectation counts for the potential failures as well. But if the capital gains taxes doesn’t factor in that risk, the tax could easily be higher than my expected profit. That means I won’t invest at all, and will seek out safer places to grow my money. > [@](#): > > Third, you kinda make it sound like the ten year delay on the T-bill is a good thing, by saying 100,000 is actually worth about $169,000. It’s comparing today’s dollar vs future dollars without accounting for inflation or opportunity costs. I was giving a simplified example. Inflation and opportunity costs apply to both the T-bill investment and my risky investment, and increase my needed return for each so they don’t change the point of the exercise. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [January 20, 2015, 10:06pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/94 "2015-01-20T22:06:11Z")
> [@doorhinge](#): > > However, a problem arises when you demand that other people pay more because you believe you should pay more. I prefer telling people they should pay more because they don’t have enough “skin in the game” or they’re “freeloaders”. I also think that some people should pay less, because they’re good people who surprisingly happen to share my tax bracket. ---
**Author:** ![doorhinge](https://avatars.discourse-cdn.com/v4/letter/d/a5b964/32.png) [@doorhinge](https://boards.straightdope.com/u/doorhinge)\ **Post date:** [January 20, 2015, 10:07pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/95 "2015-01-20T22:07:33Z")
> [@Fear\_Itself](#): > > Oooh, I like that idea so much, I think we should extend that policy to spending cuts, they should be voluntary also. Just ask the people impacted by the spending cut if they would rather not. It’s only fair. “Fair” has nothing to do with getting your spending cuts thru Congress. Do you have the votes or not? ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 20, 2015, 10:10pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/96 "2015-01-20T22:10:17Z")
> [@doorhinge](#): > > “Fair” has nothing to do with getting your spending cuts thru Congress. Do you have the votes or not? I thought we were both just spinning fantasies. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [January 20, 2015, 10:13pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/97 "2015-01-20T22:13:06Z")
> [@Sam\_Stone](#): > > But if I invest in my brother-in-law’s restaurant, there’s a 90% chance I will lose everything, and a 10% chance that I’ll hit it big. My EXPECTATION of profit may be the same or only slightly more than the T-bill, because expectation counts for the potential failures as well. But if the capital gains taxes doesn’t factor in that risk, the tax could easily be higher than my expected profit. That means I won’t invest at all, and will seek out safer places to grow my money. What you’re not considering is that part of this proposal is to put more money in the hands of middle class restaurant goers. Is that not going to affect the chances that the restaurant will succeed? ---
**Author:** ![doorhinge](https://avatars.discourse-cdn.com/v4/letter/d/a5b964/32.png) [@doorhinge](https://boards.straightdope.com/u/doorhinge)\ **Post date:** [January 20, 2015, 10:14pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/98 "2015-01-20T22:14:08Z")
for reference - > [@doorhinge](#): > > (Both posts shortened) > > There is no law against paying the IRS more than you owe. Dig deep if’n you feel the need. > > However, a problem arises when you demand that other people pay more because you believe you should pay more. That would require a vote by Congress and neither Obama, or the Democrats, have the votes to get this passed. > > Obama’s latest tax proposal appears to be DOA. > [@Fear\_Itself](#): > > I thought we were both just spinning fantasies. And you would be wrong. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [January 20, 2015, 10:15pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/99 "2015-01-20T22:15:17Z")
> [@doorhinge](#): > > And you would be wrong. So you think there will never be another tax increase? ---
**Author:** ![doorhinge](https://avatars.discourse-cdn.com/v4/letter/d/a5b964/32.png) [@doorhinge](https://boards.straightdope.com/u/doorhinge)\ **Post date:** [January 20, 2015, 10:19pm UTC](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075/100 "2015-01-20T22:19:05Z")
> [@Fear\_Itself](#): > > So you think there will never be another tax increase? A-hem, a tax increase would still require a vote by Congress before it became law. [Previous page](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075.md?page=4) [Next page](https://boards.straightdope.com/t/democrats-latest-tax-proposal/710075.md?page=6)